Budget 2015 is key to revive business confidence: Richard Rekhy

KPMG CEO Richard Rekhy says foreign investors are looking for some bold measures from the Modi government in Budget 2015.

Corporates and individuals have lots of expectations from the first full-year Budget of the new government. They expect it to spur investment activity and all-round development in the country. However, the government has its own challenges, such as containing fiscal deficit, developing the ailing infrastructure sector, boosting manufacturing activities and supporting pro-poor programmes, especially in health care, education and skill development.

Foreign investors are looking for some bold measures in the Budget. There is an expectation to repeal retrospective taxes on indirect transfer of shares, and end the uncertainty surrounding existing investment structures and transactions.

Clarity is also required on what constitutes substantial value of assets situated in India, as it impacts global mergers and acquisitions.

It would be interesting to see the position taken by the government on the general anti avoidance rules (GAAR). The expectation is to defer these rules by at least one or two more years. Guidance and clarity is also required on various aspects of GAAR, especially on the treaty override provisions.

Minimum alternate tax (MAT) must be removed or reduced substantially for businesses in the special economic zones (SEZ). There is also an urgent need to withdraw MAT for foreign portfolio investors (FPIs), else, it may lead to long-drawn disputes and litigations.

Select tax incentives to boost business activity could be provided to businesses in the manufacturing and infrastructure sectors, such as investment allowance, weighted deduction for new employment and skills development, among others.

The time taken in resolving tax disputes is a big concern for businesses. There is a need to strengthen existing dispute resolution systems, including the Authority for Advanced Rulings (AAR), Advanced Pricing Agreements (APA) and Mutual Agreement Procedures (MAP). The need of the hour is to have an effective time-bound resolution of the thousands of pending tax disputes, which are a drag on time, effort and resources, for both tax payers and tax collectors.

The biggest tax policy reform, on Goods and Services Tax (GST), is being keenly watched. It is expected that GST will subsume a plethora of indirect taxes and help ease the compliances and tax credit mechanism. Therefore, the government should lay out a road map for GST.

Individuals are also expecting some relief and have some more money in their pockets. There is a demand to raise the basic tax threshold limit to Rs 3 lakh from Rs 2.5 lakh and to increase the tax deduction limit for various savings and investments to Rs 2 lakh from Rs 1.5 lakh.

As India requires large amount of funds for infrastructure development, the government may provide a specific tax deduction for investments made by individuals towards long-term infrastructure bonds. Tax concessions, such as transport allowance of Rs 800 per month and medical reimbursement of Rs 15,000 per annum, have outlived their utility. These limits should be enhanced substantially in line with the increase in costs of transportation and medical expenses to provide some meaningful relief to individuals.

No doubt, it would be a difficult task for the government to address different expectations. However, some bold steps are required to re-build investor confidence. It's time to act now!